You’ve Filed Your 2018 Tax Return, Now What?
By now, most of us have filed our 2018 returns. The 2018 tax season threw us a lot of curveballs and caused a lot of confusion. What have we learned from this most recent tax season?
Smaller Refund Checks
Most refund checks were less than expected this year, even though an estimated 80% of filers owed less tax than in years prior. The Tax Cuts and Jobs Act (TCJA) created winners and losers for this tax season. For instance, taxpayers saw their deductions cut back in high-tax states like New York and California. Conversely, higher-income taxpayers in lower-tax states were winners this tax season. In addition, adjustments to salary withholdings tables put out by the IRS created a larger range of refunds than in previous years. You can tell that people actually got a tax cut, but when their refunds are lower, it’s hard to spin it as positive.
Roth IRA
Another win for taxpayers this season involves Roth IRA accounts. You can now take tax-free Roth withdrawals after age 59½ if you’ve had a Roth account open for over five years. If you die, your beneficiaries can dip into the Roth account without paying federal income tax. Rates have been down for the past 30 years, and they could go back up in today’s political environment. There are two ways to begin contributing to a Roth account. The first would be to start making annual contributions of $6,000 ($7,000 if you are above 50 years old). The other way would be to convert a traditional IRA into a Roth account. This would be considered a taxable distribution and will trigger a larger federal income tax bill for the current year; however, the good may outweigh the bad as the tax rate could be the lowest it’ll ever be.
Planning for the 2019 Tax Season
The 2018 tax season threw many people for a loop. Want to avoid the stress and disappointment of a small refund next year? Consider doing some tax planning before it’s too late, and ensure you are on track for your goals this year! Take advantage of your employer’s 401(k) Plan. Make sure you don’t leave any matching funds behind! Plus, HSA and FSA accounts allow you to pay for medical expenses tax-free, so look into your employer’s offerings to take advantage during your company’s open enrollment period.
Lastly, consider consulting with your tax professional before making any significant transactions. There may be tax implications that you have not considered. Most major life events have significant tax consequences. Whether it’s selling your home, transferring funds from one retirement account to another, debt consolidation, getting married, getting divorced, adopting a child, or having a baby, there may be a right and wrong way to handle it from a tax perspective. The Internal Revenue Code is full of quirky rules; the tax savings obtained from professional advice will dwarf the fees.
Contact CPA Nerds
Whether you’re planning a big life event or just want to gain peace of mind regarding your tax withholdings, we’re available to answer any financial questions you may have. Nerds standing by to answer Complicated Tax Questions: Call us today at (586) 468-0200.